Determination of All the Variables in the Classical Model Assignment Help

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In order to understand the determination of all the variables in the Classical model, let us first understand, what the classical model is.

The classical model:

Assumptions taken into consideration for determination of all variables in the Classical Model:

1) The economic agents make the decision about how much to buy or sell, in order to maximize the utility;

2) Every economic agent has the same information of prices;

3) Prices of the goods are flexible which help in market-clearing level;

4) There is an imaginary auctioneer who ensures that goods are not traded till the market-clearing price has been agreed upon;

5) Agents have a stable expectation.

How do the determinations of all the variables in the classical model take place?

In the classical model, perfect competition is the characteristic of market. W and P are not affected, where W is the money wage, P is the absolute price level, and W/P is the real wage. The total demand for labor is calculated by summing up the individual labor demands, which is the requirement of the firms.

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